Power-One Has Plenty of Juice

More than anything else, managers determine returns. They set strategy, hire key team members, oversee operations, and cash paychecks. Every move they make either enhances or destroys shareholder capital.

It pays to know who these men and women are, how they're paid, whether they, too, are owners, and how they perform versus competitors in certain key metrics. In this regular column, I'll examine all that and more with the goal of enhancing our understanding of some of the top stocks in Fooldom.

Next up: Power-One (Nasdaq: PWER) . Is the executive team of this electric grid infrastructure supplier doing all it can to earn you outsized returns?

Foolish facts

Metric

Power-One

CAPS stars (out of 5)

****

Total ratings

442

Percent bulls

91.9%

Percent bears

8.1%

Bullish pitches

54 out of 58

Highest rated peers

Dolby Laboratories, Spectrum Control, Corning

Data current as of February 14.

Power-One intrigues me because of its market position. The company's inverters transform DC electricity generated by renewable sources such as wind and solar into AC power ready for the electric grid. Emerson Electric (NYSE: EMR) is a licensee of its technology.

If only Mr. Market were more impressed. Earlier this month the stock fell as much as 24% after management guided to lower than expected first-quarter revenue. The sell-off has left the stock trading for just a fraction of Wall Street's long-term growth estimates, resulting in an almost-microscopic 0.32 PEG ratio as of this writing.

But it was the underlying value of the business rather than its relative value that Foolish colleague Jim Mueller found appealing when adding shares of Power-One to his Rising Stars portfolio.

"At a 15% discount rate, the market ... [at $8.65 a share] the market is expecting trailing free cash flow (FCF) to drop by 3.1% per year for the next five years and then never grow again. In other words, [Q3's] results of $59.3 million in FCF, if annualized, would have to drop by 36% for the next year, and then drop by 3.1% year over year after that," Jim wrote at the time. The stock is up about 5% since.

Management overview

Executive

Years

Cash Compensation

Shares Owned

Richard Thompson, CEO and President

4

$1,013,152

1,544,187

Dr. Alexander Levran, President Renewable Energy

4

$484,567

509,753

Steve Hogge, Power Solutions

1

Not given

115,000

Neil Dial, Sr. VP of Operations

3

$570,210

228,485

Gary Larsen, Sr. VP, Finance and CFO

1

Not given

101,500

Source: Capital IQ, a division of Standard & Poor's. (Data current as of Jan. 28.)

Can management keep the rally going? They've got good reason to. Insiders and strategic owners already own 8% of the business, with CEO Richard Thompson owning a 1.5% slice. Executives have also bought at levels not far above where the stock trades for now. Board member Kendall Bishop added 8,000 shares at $8.24 apiece back in September.

Source: Capital IQ, a division of Standard & Poor's. (Data current as of Jan. 28.)* Return on capital. ** Return on equity. *** Not measurable.

Power-One looks even better when you take its competitors into consideration. The company possesses huge advantages in margins and returns on capital and equity, suggestive both of pricing power and efficient management. No wonder Jim is excited about this stock. I am, too, and this morning I added it to my CAPS portfolio.

Do you agree? Disagree? Let us know what you think about Power-One using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.

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